Consumer inflation climbed to a nine-month high in June as food prices jumped, dimming hopes for a rate cut by the Reserve Bank of India in its policy meet early next month despite disappointing industrial growth numbers for May.
The Consumer Price Index, the primary inflation gauge for the central bank, rose to 5.4% in June from 5.01% the previous month, on account of a sharp rise in the prices of vegetables and pulses. The estimate was for a reading of 5.1%. The RBI will review monetary policy on August 4, before inflation data for July come in. The Index of Industrial Production expanded at a muted pace of 2.7% in May compared with 3.4% in April, building the case for a rate cut.But the RBI is now likely to focus more on prices.
In its June policy review, the central bank had cut its policy repo rate by a quarter percentage point but had effectively ruled out more reductions while forecasting inflation to accelerate to 6% by January 2016. Its price estimate was based on forecast for a weak monsoon, which though has not been the case so far. The government said the pickup in inflation was a “minor hiccup“ and there was no reason to worry with monsoon doing better than expected.
The spike in inflation was largely on account of higher vegetables price and a sharp uptick in the cost of pulses. The rate of price rise in vegetables was 5.37% in June, compared with 4.64% in May . In pulses, it was 22.24% versus 17% in May . Inflation in the overall food basket, which has a 46% weight in the Consumer Price Index, was 5.48%, compared with 4.8% in the previous month. Core inflation, a measure of demand pressure in the economy that has a bearing on monetary policy , moved up to 4.85% from 4.7% in May .
The gap between rural and urban inflation widened in June with the countryside reporting a 6.04% inflation as against 4.5% reported by its city counterpart.
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